Stock Analysis & Ideas

Coinbase Stock Recovers with Crypto Bounce; More Upside Potential Ahead

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COIN stock is higher today due to a crypto bounce over the weekend. While the company is facing rumors of insolvency, there could still be value in Coinbase and a chance of a greater recovery.

Coinbase (COIN) is still one of the leading platforms around for buying and selling cryptocurrency. Thus, when cryptocurrency values recover, so too does Coinbase stock. There’s still value to be had in crypto, apparently, as Coinbase is up over 16% today so far.

I remain bullish on Coinbase. Yes, the value of cryptocurrencies has been declining, and use cases for crypto, in general, are still light. However, with a recession likely inbound—if not already here, depending on who you talk to—contrarian investors should still find value in alternative investments. For most investors, cryptocurrency begins at Coinbase.

The last 12 months for Coinbase have been a wreck but support the notion that the company has finally found a floor. Back in early November, Coinbase cleared the $360 mark briefly, which signaled the beginning of its race to the bottom. The company lost over 80% of its value between there and here, hovering around $63.

Wall Street’s Take on Coinbase

Turning to Wall Street, Coinbase has a Moderate Buy consensus rating. That’s based on 13 Buys, six Holds, and two Sells assigned in the past three months. The average Coinbase price target of $118.95 implies 89.4% upside potential.

Analyst price targets range from a low of $42 per share to a high of $290 per share.

Investor Sentiment is Mixed

The recent plunges in cryptocurrencies have left exchanges like Coinbase on the back foot. That’s clearly the case with investors as well. Right now, Coinbase has a Smart Score of 4 out of 10 on TipRanks, which is the lowest level of “neutral.” That makes it slightly more likely than not that Coinbase will underperform the broader market.

One point supporting the general pessimism around Coinbase comes from hedge funds. Based on the results of the TipRanks 13-F Tracker, hedge funds have pulled back, reducing holdings by 601,500 shares in the previous quarter.

This is after a gain seen in the period between March and June 2022, which was the first increase in hedge fund involvement seen since the period between June and September 2021.

However, Coinbase insiders clearly have plenty of faith in the company. Insider trading at Coinbase has been heavily Buy-weighted in the last three months. Insiders bought roughly $76.8 million worth of Coinbase stock in the last three months.

That confidence is comparatively new, however, as Sell transactions outstripped Buy transactions by 57 to 28 in the last 12 months.

Meanwhile, retail investors—at least, those who hold portfolios on TipRanks—have much less faith overall. The number of TipRanks portfolios that hold Coinbase stock decreased 0.4% in the last seven days and 0.1% in the past 30 days, suggesting that investors are beginning to accelerate their pace of departure.

Then there’s the matter of Coinbase’s dividend history. It doesn’t exist. This isn’t much of a surprise, given that Coinbase has been trading publicly for a little over a year. The company has clearly been focused on growth. For a while, that was a plan that worked well. However, there’s been a significant turnaround in the last few months.

Troubles Ahead, but “Diamond Hands” May Prevail

In cryptocurrency, there is an acronym that serves as an adage: HODL. Some believe that this is simply a misspelling of “Hold” that got inflated beyond its station. Others, meanwhile, gave it a whole new significance, declaring it to mean Hold (or in some cases “Hang”) On for Dear Life.

It was an acknowledgment that there would be fluctuations in the value of cryptocurrency. Some of these would be downright wild swings, but this early investment, which would be marked by volatility for much of its early life, would one day be as stable as the best of blue chips or triple-A bonds.

Granted, we’re still waiting for that day. However, for those with “diamond hands”—that is, the ability to hold on the tightest—they still eagerly await their day of vindication.

Yes, there are troubles afoot. Coinbase has been dogged by rumors of insolvency for quite some time now. That’s the last thing anyone wants to hear about, especially if that’s where they’re storing their crypto holdings.

A recent move made by the company left investors even warier. The company canceled an affiliate program that allowed influencers to use their influence to promote Coinbase.

Coinbase shuttered the program due to “crypto market conditions and the outlook for the remainder of 2022.” It plans to restart the program at some point in 2023, but who knows if that will even happen.

It’s a cost-cutting move, obviously, and while that’s a sign of responsible stewardship of the company’s assets, it’s also a sign that the company may not have much in the way of assets to keep the program running.

It’s not all doom and gloom, however. Coinbase recently landed approval from Italian regulators that should let it keep a market. Italian agency Organismo Agenti e Mediatori provides certain requirements to continue providing services in the country. Getting the nod therein ensures that one market won’t be shuttered.

Plus, even as hedge funds started to abandon Coinbase, there are signs that the abandonment is not universal. DNB Asset Management recently purchased new shares in the second quarter. When you’re part of the largest financial services firm in Norway, your word does carry a little extra weight.

Concluding Views – Coinbase Can Stage a Comeback

Yes, there are troubles ahead for Coinbase. There are some potentially disastrous signs afoot, in fact, that will certainly leave investors leery of getting in any further.

A combination of potential insolvency and frantically departing investors from hedge funds and retail markets will be little help. The fact that Coinbase is currently trading above its lowest price target isn’t encouraging either.

However, there are also signs that Coinbase could stage a comeback. It’s already made significant gains today alone. With some investors coming on board and Coinbase holding its markets in Italy, those are encouraging points.

Better yet, it’s trading below both its average and its highest targets, suggesting that further upside is possible. Recent insider buying will lend some encouragement to fence-sitters.

There is no doubt that Coinbase will continue to be volatile for some time to come. As long as crypto itself is volatile, so too will any investment connected to it. Just look at MicroStrategy (MSTR). It is up over 14% today, mostly on the value of its bitcoin (BTC-USD) holdings.

If you’ve already invested in Coinbase, you’ve likely held on through the worst. Cryptocurrencies still have value, particularly as cross-border transaction facilitators. Getting firms in two countries to agree on a price in bitcoin is likely a lot easier than figuring out who has to convert their currency to what to make a deal.

That’s going to set a baseline for Coinbase, and that’s why I’m still bullish on this company’s future.

Disclosure

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